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Federal Circuit holds that party seeking declaratory judgment of non-infringement bears the burden to prove non-infringement

The U.S. Court of Appeals for the Federal Circuit vacated and remanded a Delaware court's finding that Medtronic Inc. did not infringe Boston Scientific patents relating to cardiac rhythm therapy (CRT) devices known as implantable cardioverter defribrillators (ICDs). Medtronic, Inc. v. Boston Scientific Corp., No. 2011-1313 (Fed. Cir. September 18, 2012). The Federal Circuit found that the lower court had improperly placed the burden of showing non-infringement on the patent owner instead of on the declaratory judgment plaintiff-licensee.

The patents at issue (RE38,119 and RE39,897) were owned by Mirowski Family Ventures LLC (MFV) and exclusively licensed to Guidant Corp., which was acquired by Boston Scientific Inc. Medtronic had a sublicense to the '119 patent, which allowed it to challenge its validity, enforceability and scope via a declaratory judgment action. As per the sublicense, Medtronic began paying royalties. It also challenged the patent's validity. A Litigation Tolling Agreement (LTA) was entered, which stayed litigation and called for MFV to identify Medtronic products that it believed were covered by the '119 patent. Under the LTA, if Medtronic disagreed with the list of patented products it had the right to retain the license but was required to seek declaratory relief of non-infringement in the United States District Court for the District of Delaware. The fact that Medtronic remained a licensee meant that MFV could not counterclaim for patent infringement. Medtronic did disagree with MFV's listing of patented products, thus giving rise to the lower court action.

The key point of litigation was whether it was licensee Medtronic's burden to prove non-infringement, or conversely, whether it was licensor MFV's burden to show infringement. Relying on Under Sea Industries, Inc. v. Dacor Corp., 833 F.2d 1551 (Fed. Cir. 1987), the Delaware court held that it is always the burden of the patent holder to show infringement. The court found, among other things, that the testimony of MFV's expert lacked foundation because he had not performed an element by element infringement analysis for each accused product and that the expert report and testimony failed to show infringement under the doctrine of equivalents. Accordingly, the court granted declaratory judgment of non-infringement in favor of Medtronic.

On appeal, MFV argued that in the declaratory judgment context, the party seeking court action should bear the burden of proof and that the cases relied on by the Delaware court were inapposite because they involved conventional patent infringement claims by the patent holder rather than declaratory actions brought by licensees. Medtronic maintained that the burden of proof in patent infringement always rests with the patent holder and should not be shifted.

The Federal Circuit noted that the issue to be decided arose from the Supreme Court's decision in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) (finding declaratory judgment jurisdiction despite the fact that plaintiff licensee continued to make royalty payments under the license.) The MedImmune Court reasoned that a licensee should not be required to cease royalty payments, and risk infringement liability, in order to challenge the scope of a license. Rather, MedImmune provided a shield to licensees seeking declaratory judgment to clarify the rights and obligations under a license agreement. The Medtronic court framed the issue as follows:

This case requires us to determine the proper allocation of the burden of persuasion in the post-MedImmune world, under circumstances in which a declaratory judgment plaintiff licensee seeks a judicial decree absolving it of its responsibilities under the license while at the same time the declaratory judgment defendant is foreclosed from counterclaiming for infringement by the continued existence of that license.

In deciding that the burden of proof properly rested on Medtronic, the Federal Circuit rejected pre-MedImmune authority as inapplicable because those cases did not involve a licensee that was shielded from an infringement counterclaim:

"Therefore, this court holds that in the limited circumstance when an infringement counterclaim by a patentee is foreclosed by the continued existence of a license, a licensee seeking a declaratory judgment of noninfringement and of no consequent liability under the license bears the burden of persuasion."

The court emphasized that the burden of proof should rest on the party that was seeking relief and disruption of the status quo, and to hold otherwise "would allow licensees to use MedImmune's shield as a sword--haling licensors into court and forcing them to assert and prove what had already been resolved by license."

Compare jurisdictions: Litigation: Enforcement of Foreign Judgments

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